What is a trust protector?
In the simplest of terms a trust protector is someone who is not the trust creator (often called a settlor, trustor, grantor, or trustmaker), not a beneficiary (usually), and not a trustee, but who holds specific powers over the trust as directed by the the trust’s creator. The trust protector exists to make sure that the trust creator’s desires are carried out when the trust is irrevocable but perhaps important circumstances have changed.
What kinds of powers does a trust protector have?
Trust creators can give trust protectors a broad range of powers depending on what kind of flexibility the creator wants to provide. The powers can be fairly limited, such as the power to remove & replace trustees, change the trust’s “situs” (the legal residence of the trust), and governing law, or they can be very broad – often including the power to change the way the trust is structured, the level of asset protection the trust provides, or even adding or removing beneficiaries.
Why would I give someone that kind of power?
As more estate planning attorneys understand and appreciate the value of preserving a family’s legacy for as long as possible, more people are establishing long-term trusts that can last for many generations. One very health trend in the estate planning industry involves helping people set up trusts that can last for many years after their death. But once the trust creator has died, the trust becomes irrevocable and thus very hard to change. (It can certainly be done, but it’s expensive, limited, and unpredictable.)
By appointing a trust protector and carefully outlining its powers, a trust creator can create a plan that can adjust to circumstances as they change, often many years after a trust has become irrevocable. Tax laws will continue to change, as will various state and federal laws concerning trust administration and asset protection. Beneficiaries will move and their personal circumstances will change. It makes sense to allow the trust to be changed over time to reflect those important changes, assuring that the trust creator’s wishes are always carried out.
How can I ensure the trust protector doesn’t completely rewrite my estate plan?
This can be very difficult to address, but we can help structure language in trusts that will create the best result possible. It starts with a clear expression of the trust creator’s intent. Why is the trust being created in the first place? Is the trust intended to create a lavish lifestyle for beneficiaries? Is it intended to preserve the family’s wealth and incentivize things like education, hard work, philanthropy, creativity, and entrepreneurship? Is it intended to provide a safety net for children and grandchildren? The more guidance behind the creator’s intent in establishing the trust, the better equipped the trust protector will be in carrying out its duties.
In addition, it’s imperative to select a trust protector with extensive experience in trust administration and a deep understanding of trust law. The trust protector should be a savvy trust professional; it’s not a job for an unskilled lay person.
Finally, the role of the trust protector should be structured with checks and balances, usually in the form of curtailed powers and clear trust provisions, to guide the protector and limit the scope of its powers. We work with drafting attorneys to carefully tailor trust protector language according to the trust creator’s intent, and then execute the role the creator designs.
Does every trust need a trust protector?
When a trust is revocable, there is nothing for a trust protector to do. Because the trust creator can change the trust at will, the trust creator can easily make changes as his or her planning needs change. If the trust is designed to simply distribute property outright to individuals or charities after the trust creator dies, there would be very little value in having a trust protector: the trust will quickly end after the property is distributed.
But as more trusts are designed to continue for a generation or more after the creator’s death, those long-term trusts should likely include a trust protector as an efficient and effective way to make sure the trust can adjust as laws and circumstances change. While there are often court-based procedures to change an irrevocable trust, those procedures can be expensive, time-consuming, and very unpredictable. Other options, including a trustee’s power to decant a trust, provide more flexibility than court-based options, but the trust protector is the most efficient way to allow a trust to change over time, helping to ensure that the settlor’s wishes are fulfilled and the trust is administered efficiently.
Why should you name an “institutional” trust protector?
One of the challenges with using trust protectors in estate plans is deciding whom to appoint. Even if the trust creator knows someone today who would be a good choice, what’s the likelihood they’ll be around in 20 years or more? We created Bespoke Protector Company to serve as an institutional protector to help ensure that a named trust protector is in place many years from now. As Bespoke Protector Company grows, we will add talented human resources as needed to ensure continuity for decades to come.
Why “Bespoke” Protector Company?
The word “bespoke” is a formal English word meaning custom-tailored. We think that the role of the trust protector is so important that the role should be tailored to each settlor and each strategy. Although we have developed a Bespoke Framework™ for designing trust protector powers, we don’t believe in “one-size-fits-all” trust protectors. Every trust is unique, so the trust protector should be designed with the unique strategy and purpose in mind.
How we work with attorneys
For best results, we work with drafting attorneys during the design and drafting phase of the estate plan to understand the trust creator’s intent behind the role of the protector, to educate, as necessary as to the state of law concerning protectors in the selected jurisdiction, and tailoring trust protector provisions consistent with the trust creator’s intent. We then track the client and the attorney through our systems to provide periodic updates to changes in the law concerning protectors, and suggest revisions to trust designs as necessary over time. Our minimal initial fee for revocable trust design work is easily combined with the drafting attorney’s initial planning fee, and our annual fee integrates nicely with the attorney’s client care or estate plan maintenance program.
We are committed to honoring and reinforcing the initial attorney-client relationship between the drafting attorney and the client. Bespoke Protector Company is not a law firm and as such, we are merely service providers to equip attorneys in providing elegant directed trust solutions for their clients.
How we work with trustees and beneficiaries
Generally speaking, the role of the trust protector is what the settlor wants it to be. However, we think that there are certain powers and roles that a trust protector can and should fill based on law and logic. We believe that trustees should generally have a free hand to exercise all the powers and duties conferred by law and by the trust instrument without interference by the trust protector. The trust protector should only intervene upon petition by one or more beneficiaries or other party with a valid interest in the trust.
The role of directed trustee is different. Bespoke Protector Company is not a “trust company” and thus does not directly manage or administer trust assets. But in many estate planning and elder law strategies, a distribution trustee can be petitioned by an interested party to make distributions from the trust on a discretionary basis. By structuring a directed trust in this way, the trust maker can divide trust control according to the expertise of various parties.
When we serve as a trustee’s advisor, we generally do so in a non-binding and truly “advisory” capacity. We help nonprofessional trustees make better decisions, administer trusts more efficiently and effectively, and we provide a sounding board and a backstop to help them manage beneficiary relations.
How we charge for our services
We establish our fees based on the nature of the role or roles we are engaged to fill. When possible, we establish a fixed annual service charge at a rate consistent with the duties we accept. From time to time we assess additional fees for extraordinary services that expand the scope of our duties. Our fees may be paid by check, ACH, or major credit card.
Annual fees are set on a recurring basis charged to a major credit card. Fees paid for periodic service on irrevocable trusts may be paid by check, ACH, wire transfer, or major credit card.